Despite what 2021 might have led you to believe, the stock market does not move up in a straight line. Since hitting its all-time intra-day high during the first week of January, the benchmark S&P 500 has delivered a peak-to-trough drop of 28%. To make matters worse, the bond market is enduring its worst year on record.
But things have been even worse for the technology-driven Nasdaq Composite (^IXIC 2.02%), which has firmly tumbled into a bear market with a peak decline of 38% in less than a year. When uncertainty arises, it's not uncommon for companies sporting high valuation premiums to take it on the chin.
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Yet, therein lies the opportunity. Just as optimism during long-lived bull markets can cause equity valuations to overshoot to the upside, pessimism during bear markets has been known to create amazing buying opportunities for patient investors. What follows are five awe-inspiring growth stocks you'll regret not buying on the Nasdaq bear market dip.
Amazon
The first magnificent growth stock investors will regret not scooping up during the bear market decline is FAANG giant Amazon (AMZN 3.43%). Though Amazon's retail segment is facing all sorts of headwinds as the likelihood of a U.S. recession grows, the company's highest-margin operating segments are firing on all cylinders.
Amazon's claim to fame has long been its clearly dominant online marketplace. The company's 14 closest competitors don't even come close to the U.S. online retail market share Amazon pulls in by itself. However, online retail sales produce very low margins. This means Amazon's primary revenue driver doesn't play a critical role in its operating cash flow generation.
What's key for Amazon is that its high-margin trio of Amazon Web Services (AWS), subscription services, and advertising services continue to grow. AWS is the world's leading provider of cloud infrastructure services, and enterprise cloud spending is, arguably, still in its very early innings. Meanwhile, the company has used the popularity of its online marketplace as a catalyst to sign up more than 200 million Prime members worldwide. All three of these higher-margin operating segments continue to grow sales by a double-digit percentage.
Since Amazon is a company that reinvests most or all of its operating cash flow, it pays to keep tabs on the company's multiple to cash flow. Throughout the 2010s, investors willingly paid 23 to 37 times the year-end cash flow to own Amazon stock. You can buy shares today for around eight times Wall Street's forecast cash flow for the company in 2025. That's inexpensive for such a game-changing company.
Lovesac
A second phenomenal growth stock begging to be bought as the Nasdaq plunges is furniture stock Lovesac (LOVE -0.05%). Despite Wall Street beating down shares over rising inventory levels, all indications and innovations continue to point to Lovesac as a long-term winner.
The key thing investors are getting with Lovesac is differentiation. Traditional furniture retailers rely on physical stores and purchase their products from a small number of wholesalers. Meanwhile, Lovesac generates about 88% of net sales from "sactionals," which are modular couches that can be rearranged in dozens of ways to fit most living spaces. Sactionals come with over 200 cover choices, can be ordered with multiple high-margin add-ons (e.g., surround-sound systems), and the yarn used in these covers is made entirely from recycled plastic water bottles. No furniture retailer can match the functionality and eco-friendly aspect of Lovesac's furniture.
To add, Lovesac's modestly higher price points target a more affluent consumer. This makes it less likely for the company to be adversely impacted by minor economic downturns and rapidly rising inflation.
The other stand-out catalyst is Lovesac's omnichannel sales platform. During the pandemic, it was able to shift nearly half of its sales online. Having multiple avenues to retail its products beyond just physical stores has helped reduce its overhead costs and pushed the company to profitability well ahead of Wall Street's expectations.
Image source: Getty Images.
Broadcom
The third awe-inspiring growth stock that you'll regret not scooping up on the Nasdaq bear market dip is semiconductor stock Broadcom (AVGO 3.84%). Even though cyclical stocks like Broadcom are almost always susceptible to economic weakness, Broadcom has a few factors that should help it weather a possible recession better than its peers.
The core growth driver for Broadcom is the ongoing shift to 5G wireless infrastructure. It's been about a decade since telecom providers upgraded their wireless infrastructure to support faster download speeds. Moving to 5G should entice businesses and consumers to trade in their older devices to take advantage of superior download speeds. Broadcom generates a majority of its revenue from wireless chips and accessories used in next-generation smartphones.
Another reason investors can trust Broadcom is the company's historically high order backlog. The company entered 2022 with $14.9 billion in orders to fulfill and, per CEO Hock Tan, was booking well into 2023. If chip demand does slow, Broadcom has a substantive cushion to fall back on, thanks to its backlog.
There are also enticing opportunities for Broadcom beyond its bread-and-butter smartphone segment. For instance, the pandemic has accelerated the pace at which businesses are moving data into the cloud. That should sustain demand for anything and everything having to do with data centers. Broadcom is a manufacturer of connectivity and access chips used in data center servers.
Cresco Labs
U.S. marijuana stock Cresco Labs (CRLBF 5.13%) is a fourth stellar growth stock you'll be kicking yourself for not buying during the Nasdaq bear market drop. Even with cannabis reform legislation failing to pass muster on Capitol Hill, an abundance of state-level legalizations is providing more than enough catalysts for multi-state operators (MSOs) like Cresco.
As of mid-October, Cresco had 54 operating dispensaries in 10 legalized states. Though it's established quite a presence in medical marijuana-legal Florida (20 dispensaries and counting), Cresco's strategy of targeting limited-license states, such as Illinois, Ohio, Pennsylvania, and Massachusetts, has been smart. Limited-license states purposely limit the number of retail licenses issued in total, as well as to a single business. In other words, these are states where up-and-comers like Cresco Labs have a fair shot at building up their brands and garnering a loyal following.
To build on this point, Cresco is nearing the closure of a big-time acquisition. It's buying MSO Columbia Care in an all-share deal that'll boost the combined company's operating dispensaries to more than 130 and increase its presence to 18 states.
However, it's Cresco's wholesale cannabis operations that really help it stand out in an increasingly crowded cannabis market. Although wholesale cannabis generates lower margins than retail sales, Cresco has volume on its side. It holds a lucrative cannabis distribution license in California and is able to place its proprietary brands in more than 575 retail locations. The Golden State is the nation's biggest weed market by annual sales.
Salesforce
The fifth awe-inspiring growth stock you'll regret not buying on the Nasdaq bear market dip is cloud-based customer relationship management (CRM) software provider Salesforce (CRM 0.42%). Despite rapidly rising interest rates putting a damper on macro growth prospects for the U.S. economy, Salesforce's competitive advantages make it a no-brainer buy following its sizable pullback.
For those unfamiliar, CRM software is used by consumer-facing businesses to boost sales from existing customers. The goal is to enhance existing customer relationships by quickly resolving issues, running predictive analyses to determine which clients might buy a new product or service, or leaning on CRM for online marketing campaigns.
Salesforce is the CRM kingpin. According to an IDC report, Salesforce accounted for close to 24% of global CRM spending in 2021, and it's consistently grown its share in each of the past five years. Similar to Amazon's dominance, Salesforce possesses more CRM share than its four closest competitors combined. This makes it very unlikely that it'll be dethroned as the No. 1 player in this sustained double-digit opportunity anytime soon.
As I recently pointed out, Salesforce has done a bang-up job incorporating inorganic growth into its formula for success. Co-founder and co-CEO Marc Benioff has overseen the acquisitions of MuleSoft, Tableau Software, and Slack Technologies, among others. These deals provide new revenue channels and cross-selling opportunities and help expand the Salesforce ecosystem.
If Salesforce can achieve Benioff's target of $50 billion in full-year sales by fiscal 2026 (calendar year 2025), it'll be an incredible bargain for investors buying at today's share price.
